Build-A-Bear Workshop, Inc. Reports Third Quarter Fiscal 2012 Results

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Build-A-Bear Workshop, Inc. Reports Third Quarter Fiscal 2012 Results

ST. LOUIS--(BUSINESS WIRE)-- Build-A-Bear Workshop, Inc. (NYS: BBW) , an interactive entertainment retailer, today reported results for the third quarter and first nine months ended September 29, 2012.

Third Quarter Fiscal 2012 Highlights:

  • Consolidated net retail sales of $84.3 million represented an 11.9% decrease compared to $95.4 million in 2011, excluding the impact of foreign exchange;
  • Consolidated comparable store sales decreased 11.1% which included an 11.8% decrease in North America and a 7.9% decrease in Europe;
  • Achieved cost savings of $1.0 million; on track to achieve approximately $7.0 million of savings in fiscal 2012; and
  • Net loss was $4.3 million, or $0.26 per share compared to net income of $0.9 million, or $0.05 per diluted share in the fiscal 2011 third quarter. Net loss in 2012 was negatively impacted by (i) $0.14 per share related to changes in the effective tax rate; and (ii) $0.02 per share resulting from a change in share count due to repurchases that were made in the fourth quarter of 2011.

Maxine Clark, Build-A-Bear Workshop's Chief Executive Bear commented, "Clearly we are disappointed with the quarter's results. We were up against a difficult comparison from last year when product tied to the theatrical release of the Smurfs led to incremental traffic and transaction growth throughout the quarter. However, we made progress on our key strategies which build on the foundation for our future.

"Sales in our new store design have exceeded our expectations, and this success allows us to add elements or in some cases fully remodel our most productive stores. At the same time, we expect to improve our profitability by closing an additional 50 to 60 underperforming locations over the next two years to reach our optimal count of 225 to 250 stores. We recently launched our brand building TV advertising which will reinforce our store experience, and we expect the classic theme of our holiday merchandise to lead to a solid performance in the fourth quarter," Ms. Clark concluded.

Additional Fiscal 2012 Third-Quarter Details (13 weeks ended September 29, 2012):

  • Total revenues were $86.0 million, compared to $97.4 million in the fiscal 2011 third quarter, a decrease of 12.0%, excluding the impact of foreign exchange.
  • Consolidated e-commerce sales declined 7.6%, excluding the impact of foreign exchange compared to an increase of 20.3% in the fiscal 2011 third quarter.
  • Pre-tax loss of $4.5 million compares to a pre-tax income of $1.9 million in the fiscal 2011 third quarter.
  • Tax benefit was $0.2 million at an effective rate of 4.5% compared to a tax expense of $1.0 million at an effective rate of 54.2% in the 2011 third quarter.

Fiscal 2012 First Nine-Months (39 weeks ended September 29, 2012):

  • Total revenues were $262.8 million, compared to $275.2 million in the first nine months of fiscal 2011, a decrease of 4.5%, excluding the impact of foreign exchange.
  • Consolidated net retail sales were $258.5 million compared to $269.9 million in the first nine months of fiscal 2011, a decrease of 4.2%, excluding the impact of foreign exchange.
  • Consolidated comparable store sales decreased 4.0%, including a 3.4% decrease in North America and a 6.7% decrease in Europe.
  • Consolidated e-commerce sales rose 2.6%, excluding the impact of foreign exchange which comes on top of an increase of 12.8% in the first nine months of fiscal 2011.
  • Pre-tax loss was $13.9 million compared to a pre-tax loss of $12.5 million in the first nine months of fiscal 2011.
  • Tax benefit was $1.1 million at an effective rate of 7.7%, compared to a tax benefit of $4.4 million at an effective rate of 35.2% for the first nine months of fiscal 2011.
  • Net loss was $12.8 million, or $0.79 per share compared to net loss of $8.1 million, or $0.45 per share in the first nine months of fiscal 2011. Net loss in 2012 was negatively impacted by (i) $0.24 per share related to changes in the effective tax rate; and (ii) $0.07 per share resulting from a change in share count due to repurchases that were made in the fourth quarter of 2011. Last year's net loss was negatively impacted by $0.11 per share related to the Company's consulting project.

Balance Sheet

The Company ended the 2012 third quarter with a strong balance sheet and no borrowings under its revolving credit facility. As of September 29, 2012, cash and cash equivalents totaled $22.1 million, the majority of which was domiciled outside of the U.S. Total inventory at quarter end was $54.9 million. Inventory per square foot was flat with the prior year period.

Stores

The Company expects capital expenditures to be approximately $18 million in fiscal 2012 to support the update and repositioning of stores as well as investment in infrastructure. In fiscal 2012, the Company will close nine stores, including certain non-traditional locations, and remodel 14 stores, including five stores in its new design. The Company will open five new stores across geographies including one store in its new design. Depreciation and amortization is expected to be approximately $21 million.

The Company currently plans to close an additional 50 to 60 stores in fiscal 2013 and 2014 to reach its optimal store count of 225 to 250 stores. These select store closures are expected to transfer approximately 20% of sales to other stores in the same markets.

During the quarter, the Company closed three stores across geographies. At quarter end, the Company operated 283 traditional stores and ten non-traditional stores in North America and 58 traditional stores in Europe. (See Company-Owned Store Activity Schedule.) The Company's international franchisees opened three stores, net of closures, ending the quarter with 87 stores in 14 countries.

Accomplishments Toward 2012 Objectives:

  • Introduce a new store design - TheCompany opened the first three newly imagined stores with sales that exceeded expectations and is on track to have six stores opened by the end of fiscal 2012. These new stores elevate the experience of making a stuffed animal and position the Company to achieve higher sales.
  • Improve store productivity and profitability - In the 2012 fiscal year, the Company will close nine stores, transferring a portion of the sales to other stores in the market and will reduce the square footage of 11 other stores by remodeling and moving them to smaller locations within the same malls.
  • Increase shopping frequency - The Company reintroduced brand building TV advertising beginning in mid-October to drive customer traffic, further engage existing guests and attract new guests to its stores.
  • Reinforce Build-A-Bear Workshop as a top destination for gifts - The Company will capitalize on its brand advertising to remind Guests about the gift of experience and has expanded third-party outlets for gift cards during the peak gifting season in the fourth quarter.
  • Increase the Company's global presence - In the 2012 fiscal year, the Company has opened two stores in the UK and anticipates the opening of 14 international franchise locations, net of closures.
  • Improve cost efficiencies - The Company is on track to achieve cost savings of approximately $7 million in fiscal 2012, a portion of which has offset expected product cost increases and will support sales-driving marketing initiatives in the fourth quarter.

Today's Conference Call Webcast

Build-A-Bear Workshop will host a live Internet webcast of its quarterly investor conference call at 9 a.m. ET today. The audio broadcast may be accessed at the Company's investor relations Web site, http://IR.buildabear.com. The call is expected to conclude by 10 a.m.

A replay of the conference call webcast will be available in the investor relations Web site for one year. A telephone replay will be available beginning at approximately noon ET today until midnight ET on November 1, 2012. The telephone replay is available by calling (858) 384-5517. The access code is 401557.

About Build-A-Bear Workshop, Inc.

Build-A-Bear Workshop, Inc. is the only global company that offers an interactive make-your-own stuffed animal retail-entertainment experience. There are more than 400 Build-A-Bear Workshop stores worldwide, including company-owned stores in the U.S., Puerto Rico, Canada, the United Kingdom and Ireland, and franchise stores in Europe, Asia, Australia, Africa, the Middle East, Mexico and South America. Founded in St. Louis in 1997, Build-A-Bear Workshop is the leader in interactive retail. Brands include make-your-own Major League Baseball® mascot in-stadium locations, and Build-A-Dino® stores. Build-A-Bear Workshop extends its in-store interactive experience online with its award winning virtual world Web site at bearville.com®. The company was named to the FORTUNE 100 Best Companies to Work For® list for the fourth year in a row in 2012. Build-A-Bear Workshop (NYS: BBW) posted total revenue of $394.4 million in fiscal 2011. For more information, call 888.560.BEAR (2327) or visit the company's award-winning Web site at buildabear.com®.

Forward-Looking Statements

This press release contains "forward-looking statements" (within the meaning of the federal securities laws) which represent Build-A-Bear Workshop expectations or beliefs with respect to future events. Our actual results may differ materially from the results discussed in the forward-looking statements. These risks and uncertainties include, without limitation, those detailed under the caption "Risk Factors" in our annual report on Form 10-K for the fiscal year ended December 31, 2011, as filed with the SEC, and the following: general global economic conditions may continue to deteriorate, which could lead to disproportionately reduced consumer demand for our products, which represent relatively discretionary spending; customer traffic may decrease in the shopping malls where we are located, on which we depend to attract guests to our stores; we may be unable to generate interest in and demand for our interactive retail experience, or to identify and respond to consumer preferences in a timely fashion; our marketing and on-line initiatives may not be effective in generating sufficient levels of brand awareness and guest traffic; we may be unable to generate comparable store sales growth; we may be unable to effectively operate or manage the overall portfolio of our company-owned stores; we may be unable to renew or replace our store leases, or enter into leases for new stores on favorable terms or in favorable locations, or may violate the terms of our current leases; the availability and costs of our products could be adversely affected by risks associated with international manufacturing and trade, including foreign currency fluctuation; our products could become subject to recalls or product liability claims that could adversely impact our financial performance and harm our reputation among consumers; we are susceptible to disruption in our inventory flow due to our reliance on a few vendors; high petroleum products prices could increase our inventory transportation costs and adversely affect our profitability; we may not be able to operate our company-owned stores in the United Kingdom and Ireland profitably; we may be unable to effectively manage our international franchises or laws relating to those franchises may change; we may improperly obtain or be unable to protect information from our guests in violation of privacy or security laws or expectations; we may suffer negative publicity or be sued due to violations of labor laws or unethical practices by manufacturers of our merchandise; we may suffer negative publicity or negative sales if the non-proprietary toy products we sell in our stores do not meet our quality or sales expectations; we may lose key personnel, be unable to hire qualified additional personnel, or experience turnover of our management team; we may be unable to operate our company-owned distribution center efficiently or our third-party distribution center providers may perform poorly; our market share could be adversely affected by a significant, or increased, number of competitors; we may fail to renew, register or otherwise protect our trademarks or other intellectual property; poor global economic conditions could have a material adverse effect on our liquidity and capital resources; we may have disputes with, or be sued by, third parties for infringement or misappropriation of their proprietary rights; fluctuations in our quarterly results of operations could cause the price of our common stock to substantially decline; and we may be unable to repurchase shares of our common stock at the times or in the amounts we currently anticipate or the results of the share repurchase program may not be as beneficial as we currently anticipate. These risks, uncertainties and other factors may adversely affect our business, growth, financial condition or profitability, or subject us to potential liability, and cause our actual results, performance or achievements to be materially different from those expressed or implied by our forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

All other brand names, product names, or trademarks belong to their respective holders.

 
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(dollars in thousands, except share and per share data)
      
13 Weeks13 Weeks
EndedEnded
September 29,% of TotalOctober 1,% of Total
2012Revenues(1)2011Revenues(1)
Revenues:
Net retail sales$84,26398.0$95,37897.9
Commercial revenue9081.11,1601.2
Franchise fees800 0.9 872 0.9 
Total revenues85,971 100.0 97,410 100.0 
Costs and expenses:
Cost of merchandise sold53,88763.357,57259.6
Selling, general and administrative36,57342.538,01339.0
Interest expense (income), net(36)(0.0)(40)(0.0)
Total costs and expenses90,424 105.2 95,545 98.1 
Income (loss) before income taxes(4,453)(5.2)1,8651.9
Income tax expense (benefit)(201)(0.2)1,011 1.0 
Net income (loss)$(4,252)(4.9)$854 0.9
 
Earnings (loss) per common share:
Basic$(0.26)$0.05 
Diluted$(0.26)$0.05 
Shares used in computing common per share amounts:
Basic16,473,11417,378,486
Diluted16,473,11417,396,144
 
 

(1)

 

Selected statement of operations data expressed as a percentage of total revenues, except cost of merchandise sold which is expressed as a percentage of net retail sales and commercial revenue. Percentages will not total due to cost of merchandise sold being expressed as a percentage of net retail sales and commercial revenue and immaterial rounding.
 

 
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(dollars in thousands, except share and per share data)
      
39 Weeks39 Weeks
EndedEnded
September 29,% of TotalOctober 1,% of Total
2012 Revenues(1)2011 Revenues(1)
Revenues:
Net retail sales$258,45298.4$269,92998.1
Commercial revenue1,9890.83,0021.1
Franchise fees2,313 0.9 2,312 0.8 
Total revenues262,754 100.0 275,243 100.0 
Costs and expenses:
Cost of merchandise sold163,05762.6167,72361.5
Selling, general and administrative113,77443.3120,01143.6
Interest expense (income), net(185)(0.1)(41)(0.0)
Total costs and expenses276,646 105.3 287,693 104.5 
Loss before income taxes(13,892)(5.3)(12,450)(4.5)
Income tax benefit(1,072)(0.4)(4,377)(1.6)
Net loss$(12,820)(4.9)$(8,073)(2.9)
 
Loss per common share:
Basic$(0.79)$(0.45)
Diluted$(0.79)$(0.45)
Shares used in computing common per share amounts:
Basic16,323,63017,781,943
Diluted16,323,63017,781,943
 
 

(1)

 

Selected statement of operations data expressed as a percentage of total revenues, except cost of merchandise sold which is expressed as a percentage of net retail sales and commercial revenue. Percentages will not total due to cost of merchandise sold being expressed as a percentage of net retail sales and commercial revenue and immaterial rounding.
 

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BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(dollars in thousands, except per share data)
    
September 29,December 31,October 1,
201220112011
ASSETS
Current assets:
Cash and cash equivalents$22,145$46,367$25,106
Inventories54,88551,86056,258
Receivables4,7217,8784,889
Prepaid expenses and other current assets13,56917,85420,646
Deferred tax assets 487  419  7,624 
Total current assets95,807124,378114,523
 
Property and equipment, net73,75477,44578,965
Goodwill33,87632,30632,614
Other intangible assets, net510655836
Other assets, net 7,218  6,787  15,625 
Total Assets$211,165 $